January 08, 2011
Money Supply, here defined as M1, does not include savings accounts and CD's. Much of the jump in late 2008 appears to be people moving their money out of CD's and into demand accounts. Regardless, M1 jumps around a lot, often with no forthcoming inflation. Though none of the M2 increases has been really big and last a long time.
January 08, 2011
"Federal Reserve Bank Credit" is the quantity of assets (corporate debt, MBS, Treasuries) that the Fed has bought from the market with "new" money. You can see that the money supply didn't increase anywhere near as much as the amount of money the Fed infused into the market. (note that M2 is the right axis scale).
January 08, 2011
Money Supply, here defined as M2, which includes savings accounts and CD's, has bounced around a lot over the years. Sometimes it appears to predict a jump in inflation - quite often it doesn't. None of the jumps in M2 have been either than big or lasted that long.
January 08, 2011
An increase in bank lending would signal that banks are putting to work all the deposit money that they have available to them. But lending is still slowly shrinking, and even total credit, which includes bonds, is fairly stagnant.
January 08, 2011
Federal Reserve Bank Credit is the amount of assets (corporate paper, MBS, Treasuries) purchased by the Fed. Changes in the Fed's amount of credit represent the amount of money they have created and put into the economy. Excess Reserves is the amount of money that banks deposit at the Fed, in excess of what regulations require. You can see that the Fed created a lot of money in Q4 2008 to buy assets from banks, and the banks have deposited most of that money back at the Fed.
January 05, 2011
Medicare expenses will far outstrip the Medicare taxes unless we either cut the growth of health care costs severely, or triple our current Medicare tax rate. Expected Medicare expenses will literally be more than three times accumulated lifetime tax payments (plus interest), and will exceed lifetime revenue by an average of over $180k per person. This is not anywhere close to a self-funding insurance program.
January 05, 2011
Social Security benefits have increased over time (in constant, inflation adjusted dollars), but expected lifetime tax revenue has been keeping up and will even exceed lifetime benefits. Nothing scary here.
January 05, 2011
Men are a better deal for both Social Security and Medicare because they have a shorter life span and thus don't consume as much in benefits. A couple with only one wage earner is always the worst cohort because they receive all the benefits but only pay half the taxes per person.
January 04, 2011
Part of underwriting any kind of debt is measuring the borrower's capacity to repay. If the customer's income is trending up, then you feel a lot safer than if it is falling. For a government, their tax revenue is inherently tied to their economic growth. And sure enough, the nations with the highest interest rates tend to have negative or minimal GDP growth.
January 04, 2011
The sovereign default problem is often discussed as a problem of debt and spending levels. And sure, if they didn't have any debt then they couldn't default. But credit risk is more complicated than just debt load, one should consider many factors. Some nations have relatively low debt, but high perceived risk - and vice versa (see graph below). Part of the discrepancy is that severe recessions have a nasty habit of making bad banking and other private debt into public debt, which offers the potential for future government liabilities to be much larger than they appear.
January 04, 2011
An easy indication that market also fears default is the interest rate they charge to buy a country's debt. Greece is a mess, Ireland is in bad shape, and if they fall then a domino effect is feared on Portugal and Spain. And Spain is a much, much bigger economy.
January 04, 2011
Some tax revenue is particularly sensitive to economic growth. Taxes on corporate profits and capital gains can virtually disappear in a recession. You can see that Spain (-37%) and Ireland (-20%) have much lower tax revenue than they did a few years ago. At least from OECD data, 2009 tax revenue data still isn't available for Greece and Portugal. They are in essence low doc loans. And one of Greece's problems in the past is that they were basically committing fraud by reporting incorrect government expenses and debt levels.
January 02, 2011
Of the mortgage securities that were considered the very best during the housing boom (2005-2007), those that were rated 'AAA' and made on Prime or Alt-A mortgages, around 90% have or will default.
January 01, 2011
The manufacturing sector doesn't employ that many people in the US anymore - only 8% of all jobs are in the manufacturing industry. Only 4% of all jobs are in construction. Compare that to our unemployment rate of nearly 10%, and you see that we actually have more people unemployed than we have working in manufacturing. If you include with the unemployed those who gave up looking for work (discouraged), then the US has more people unemployed than it does in manufacturing and construction combined.
December 14, 2010
Increases in Capital Gains Income (net), as reported to the IRS in individual tax returns have had several large jumps in the past century. The jumps in capital gains income have coincided with speculative bubbles that harmed the economy. We should question if lower tax rates for capital gains increases investment, or speculation.
December 14, 2010
Over the past 20 years the highest tax rate for long term (>12 mo) capital gains has fallen much more than taxes on ordinary income. The current capital gains tax rate of 15% is less than half of the top tax rate for salary income of 35%. Are we creating incentives to work and invest? Or just to speculate and reclassify other income as 'capital gains'?
December 14, 2010
Lower tax rates are supposed to lower unemployment, but for the past 15 years it has been just the opposite. This is easier to see in the bottom version of the graph, where the unemployment rate's order is flipped. This defies the conventional wisdom behind policies that cut tax rates.
December 14, 2010
In spite of the common belief that Federal taxes have been increasing, they have been constant since the Bush tax cuts of 2001 and 2003. The only major change from the downward trend was from the Omnibus Budget Reconciliation Act of 1993. The highest tax brackets for individual income in the 50's and 60's were an amazingly high 90%.
December 14, 2010
Federal corporate income taxes fell through the 50's, 60's and 70's. At an aggregate level, an increase in taxes at state & local levels largely made up for the drop in Federal corporate taxes. Federal personal taxes, as a percent of GDP, had been fairly consistent for decades, until the last 15 years of bubbles and tax changes.
December 14, 2010
For decades, total taxes have remained around 20% of GDP. In the 1990's, it increased due to a tax increase and stock bubble. Then taxes fell, initially due to a recession, but continued to fall due to a major tax cut. Taxes rallied in the housing bubble, and then plummeted to their lower level in 60 years due to a severe recession and a general tax cut.
December 14, 2010
Individual Federal taxes generally increased slightly during the 1990's, except for the top 400 tax filers. The Bush tax cuts of 2001 and 2003 lowered average tax rates across all income groups - particularly the top 400 individual filers. By recent history standards, most people are paying a lower Federal tax rate than they used to.
December 11, 2010
Conventional theory in the US is that lower taxes creates higher economic growth. But this graph shows that most developed countries have both higher taxes and higher economic growth than the US over the past decade. The quality of government spending and investment is at least as important as the quantity of taxation.
December 10, 2010
Initial unemployment claims have fallen, but we have a long way to go to get to where we were before the financial crisis. And these are only new claims, not continuing claims. A lot more people are still losing their jobs than before.
December 09, 2010
Something from the paper, "Evaluating Conditions in Major Chinese Housing Markets". Notice how appreciation was muted during the global financial crisis, but is taking off with the government stimulus program. Now the Chinese government is trying to slow down house prices.
December 07, 2010
Many other countries had house price appreciation similar to, or greater than the US (even after adjusting for growth in national income). What many of these countries have in common is a negative balance of payments - driven by trade deficits. Countries with trade surpluses tend to have lower, or even negative house price appreciation. Currency from trade surpluses was sent back to the trading partner to buy debt, fueling cheap credit and bubbles.
December 07, 2010
House prices far outstripped the growth of the domestic economy (national income) in many countries during the housing bubble. China's house prices increased, but not as fast as their economy. House prices actually fell in Germany.
December 07, 2010
House prices rose an average of 8% annually or more through much of the West between 2001 and 2005. Where house prices rose the most, they often fell from 2006-2008. The global recession at least slowed house price growth almost everywhere.
November 22, 2010
Disposable income has increased from pre-crisis levels due to an increase in government transfer payments (Social Security, welfare, etc.) and a decrease in tax payments. Employee compensation is still not to early-2008 levels. Half of the increase in disposable income was absorbed by savings. In the end, personal consumption has increased since pre-crisis levels, but at a big expense to the government.
November 22, 2010
Although recovering, US consumption (adjusting for inflation) of durable goods, non-durable goods, and equipment is still below the peak in early 2008. Services are almost back to their previous point - but that includes growth in healthcare services. Until the US consumes more than it did before, there isn't enough demand to support much business hiring and investment, because businesses can supply the demand with existing resources.
November 22, 2010
When the recession hit, personal tax payments plummeted (lower employment, lower profits, stimulus tax cuts). But government transfer payments (Social Security, Medicare, unemployment) has actually sped up. The growing gap won't be narrowed without much higher employment.
November 22, 2010
The drop in GDP can be traced to a drop in all kinds of investment - particularly residential and non-residential building. Significant growth has only come from two places, the Federal Government and an increase in inventories. Inventories only stay high if sales are also high. And state & local government is now shrinking, which is eating into the consumption of aggregate government (including Federal government).
November 19, 2010
In terms of economic growth and deflation, one way the US is not like Japan is that the US labor force (including those looking for work) has steadily increased. However, the US force size has stagnated recently - probably due to lower immigration and because long term unemployed dropping from the expectation of getting a job.
November 19, 2010
For all the talk of Japanese deflation, there actually hasn't been much. Japan's deflation isn't more than 1% per year. It isn't deflation as much as complete stagnation. Where there has been significant deflation in Japan is on durable goods, which have fallen by half their price in the past twenty years. Perhaps it is low demand, perhaps because it is coming from lower cost China.
November 19, 2010
Over the past 15 years durable good prices haven't kept up with general inflation, and have actually fallen slightly over the past 5 years. See similar graph for Japan, where durable good prices fell much more. With the US follow Japan?
November 18, 2010
Shelter makes up 32% of the Consumer Price Index, and even more of the core CPI (excludes food & energy). You can see how shelter prices were decelerating since 2007, and have now turned negative. This is a significant cause for the slow down in Core CPI. Note that shelter is based mostly on a rent equivalent for owner occupants, and actual rent payments for renters.
November 18, 2010
The cost of shelter is the biggest component of the CPI (32%), and has fallen over the past year. Many other major components of the CPI are pretty similar to their longer term inflation trend. We have disinflation, but if we exclude shelter, we are a long way from deflation.
November 18, 2010
The total CPI is rising at about half the speed that it has over the past decade. And if we look at Core CPI (excluding volatile food & energy), inflation is only 1/3rd the long term rate. But a lot of this disinflation is due to the falling cost of shelter. The inflation trend has fallen little if the cost of shelter is removed from either total CPI or Core CPI.
November 14, 2010
Until the recession, Medicare revenue was keeping up pretty well with Medicare expenses. Now the gap is widening, another victim of the recession. Both Medicare expenses and revenue have outstripped employee salary & wages for some time. Clearly, this can't continue.
November 14, 2010
Medicare expenses are eating up a lot more of our salary & wages, particularly over the past decade when salary & wages have increased at a slower (or negative) rate.
November 14, 2010
The graph is for 2004, and the cumulative inflation rate for medical care since then has increased by 26%. Back in 2004 the government paid almost $10,000 per year for healthcare on someone 65+ years old. And over $17k for someone 85+ years old. 17.5% of the 20+ age population is now 65+ years old. Getting old is expensive, particularly for the government.
November 11, 2010
Although US industrial utilization has recovered, it is still only at levels associated with the lows of previous recessions - so there is little reason for capitalists to invest more. Industrial capacity itself has been growing more slowly for decades, reflecting a shrinking manufacturing sector.
November 07, 2010
Much of the increase in the US stock market was correlated (due?) to a falling dollar. If the S&P was purchased in Euro's, the recovery would be smaller, and if purchased in Canadian Dollars the recovery would be much smaller. Valuation is relative to currency.
November 07, 2010
The US dollar has been falling relative to Euro's and Canadian Dollars for a long time. The US dollar rallies whenever there is global fear, but the long term trend is downward.
November 06, 2010
In a mortgage either the borrower or lender is taking the risk that interest rates increase in the future. Fixed rate mortgages shift the risk to the lender or mortgage investor. Someday, interest rates will rise and bear a huge cost on financial institutions. I propose a new product where the borrower gets a variable rate mortgage, but the interest rate is capped at the rate for a 30-year fixed rate. The borrower and lender are both better off than a fixed rate mortgage.
November 05, 2010
State and local government started falling in late 2009. Over 150,000 fewer people are employed in public education than two years ago - I guess most of these are teachers. The quantity of teachers doesn't always equal the quality of education. But it sure isn't a good indicator of the quality of education or productivity of employees for the next generation (when we retire).
November 05, 2010
For the past decade employment has increased in healthcare and decreased in goods producing industries (manufacturing, mining, and construction). More recently, only healthcare employment (not even government employment) has recovered to pre-crisis levels.
November 05, 2010
The fall in construction employment since the bust isn't as severe as the long term drop in manufacturing jobs. Manufacturing is a larger sector, and has lost 1/3rd of its jobs in the past decade. Construction jobs may return to pre-crisis levels in a couple of years. Will manufacturing?
November 05, 2010
Not only has the US lost 7 million jobs since early 2008, but we actually have fewer people working now than we did in 2000. During a decade of no net job growth, the population of peak working age (20-64) has increased by 20 million (4 million since the financial crisis). Taken together, the US is running about 10 million jobs where it should be. This is a crisis.
November 05, 2010
Much of the job growth was in temp, retail, and food service. A job is good, but I doubt most of these jobs have the income or stability to qualify for a mortgage.
November 03, 2010
Since October, 2008 the Fed hasn't created new money, but has reinvested their balance sheet from assets that provided liquidity to the market, and into agency mortgage backed securities. The excess reserves that banks keep at the Fed closely mimics the growth in Fed money creation.
